The rights of a contracting party are affected by the impropriety of the third party if they knew of it or are deemed to have such knowledge. But an innocent contracting party is entitled to have the contract set aside.

The courts are however concerned with whether there has been constructive knowledge of impropriety on the part of the innocent party or not. Under what circumstances can constructive knowledge of impropriety be said to be gotten?

  • Placed on inquiry: This is very common in the case of a Bank involved in a mortgage transaction over a property who will be placed on inquiry of an impropriety by a third party in the following three situations;

. The transaction is so extravagantly improvident that it is difficult to explain in the absence of some impropriety;

. The bank knew that the other contracting party was agreeing to a charge over property which was jointly owned with someone with whom he or she was automatically presumed to be in a relationship of trust; or

. The bank knew that the contracting party was accustomed to placing trust and confidence in the joint owner of the property in relation to his or her financial affairs.

  • Avoiding constructive notice: Where a contracting party is placed on inquiry as to the existence of undue influence, they will only be able to enforce the contract if they can avoid being fixed with constructive notice of the undue influence. A contracting party will avoid having constructive notice by taking reasonable steps to satisfy itself that the other party’s agreement had been freely given.
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